Gaurav Srivastava on Medium: Why the Israel-Iran War Will Ultimately Stabilize Oil Prices
For decades, the global oil market has danced to the rhythm of tensions in the Middle East. Every round of conflict, missile launch, or diplomatic tension sends prices lurching,revealing a fundamental truth: the single most important factor in the global price of oil is stability.
Since 1979, the Islamic Republic of Iran has been the primary destabilizing force in the region. Whether through direct action or by fueling its vast proxy network—from Hezbollah in Lebanon and Hamas in Gaza to the Houthis in Yemen—Iran has exported instability as a strategy and mastered the art of keeping the Middle East permanently on edge. That instability has long injected a premium into oil prices, pricing in the risk of future conflict or disruption in the Strait of Hormuz.
In the short term, some volatility is inevitable, as we witnessed during the 12 day Israel-Iran war.
Dr. Udi Levi, former head of Mossad’s Economic Warfae Unit, global oil prices might rise in the short-term in one of two risk scenarios: The first, an Israeli-American strike against Iranian oil and gas reserves, which it has thus far abstained from. In such a case, the main casualty will be China, the largest consumer of Iranian oil, which will lead to an increase in Chinese demand for alternative sources. The second scenario is an Iranian retaliatory strike against Gulf oil reserves as well as the blockade of the Hormuz Straits, which could lead to a real shortage of oil globally. The U.S., however, retains strategic reserves and production capacity to mitigate short-term shocks.
But beyond the immediate aftermath lies the long-term impact—and it is one of potential stability.
By crippling Iran’s nuclear program and degrading its military capabilities, the U.S strike has undercut Tehran’s most powerful source of regional leverage. A nuclear-capable Iran would have had immense leverage over the region—able to deter or coerce through threat alone. Its proxies would have operated under an even stronger shield, emboldening aggression without consequence. The American-Israeli strikes, are a confrontation with that bleak future.
However, while dismantling Iran’s military and nuclear capabilities is essential, outright regime change would carry great peril. History has shown that collapsing authoritarian regimes in the Middle East can unleash chaos rather than freedom. In Iran’s case, a power vacuum could trigger violent internal strife, unleash competing factions—including the Azeri minority, Afghan refugees and hardline Revolutionary Guard elements—and spill instability across borders. A fractured Iran could destabilize global markets far more than a contained one.
Markets ultimately crave predictability. A region no longer living in the shadow of a nuclear Iran, and where proxy networks are weakened or deterred, may offer just that. As Iran’s ability to sow chaos has been meaningfully diminished, Hezbollah, the Houthis, and other militias are forced to pull back or re-calculate—and the region may edge toward a new equilibrium. In that context, oil prices may not skyrocket, but instead normalize as risk premiums decline.
And that’s where American interests come into sharp focus.
The United States has no greater ally in the Middle East than Israel—an ally that shares our democratic values, but more importantly, shares the burden of pushing back against those who threaten global stability. It was a preemptive blow against a future in which nuclear blackmail defines diplomacy.
By acting now, Washington and Jerusalem have sent a clear message: the rules-based global order still matters. And in doing so, they’ve not only reshaped the Middle East—they may have helped stabilize global energy markets for the long run.